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Authorized user or joint account holder?

Decide carefully who gets added to your account and how

By Todd Ossenfort

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The Credit Guy, Todd Ossenfort, is a credit expert and answers readers' questions about credit, counseling and debt issues.

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Question for the expert

Dear Credit Guy,
What is the difference between a joint account holder and an authorized user? Is an authorized user legally liable to pay the credit card balance in the event that the principal has abandoned the debt? -- Ruth

Answer for the expert

Dear Ruth,
This is a confusing topic for many people. Let's see if I can shed some light on it for you. A joint account holder for a credit card account is equally responsible for the balance of the account along with the other person named on the account and is legally liable for any amount due. An authorized user, on the other hand, is able to use the credit card account, but is not legally liable for the balance due on the account.

Keep two things in mind when deciding whether you want to be a joint account holder or an authorized user on someone's account or how you want to designate another person added to your account.

One, a joint account holder is responsible for the balance, so only add someone who you know is capable and willing to pay the account if you are unable. Likewise, only agree to be a joint cardholder if you are prepared to pay the account yourself. Otherwise, both people's credit will be negatively affected if the account becomes delinquent.

Two, an authorized user has the ability to use the account for purchases just as you do, but without any of the financial responsibility. Only add someone you can trust not to abuse the privileges that come with having access to your account.

Also, when you add an authorized user, you should ask to put a lower credit limit on that account. One of the more common uses for adding authorized users is to allow children to have their own cards, but you as the account holder are still in control. This is a great tool for teaching a responsible teen when and how to use a credit card wisely. As an authorized user on someone's account, that person is not legally responsible, but the account does appear on his credit report.

Many people add an authorized user to their accounts to try and boost the credit history of the person being added. However, because of abuse of that function in credit scoring, the VantageScore model does not consider authorized users in the calculation of scores. In addition, although FICO scores currently include them, the new FICO '08 does not include authorized user accounts either. The credit bureaus are scheduled to begin using FICO '08 sometime this summer. An authorized user account still appears on your credit report. So, if a lender is viewing your actual report and not just your credit score, the account, whether in good standing or bad, may or may not be considered by the lender in making lending decisions.

Take care of your credit!

Todd Ossenfort is the chief operating officer for Pioneer Credit Counseling in Rapid City, S.D. Pioneer Credit Counseling has been a member of the Association of Independent Consumer Credit Counseling Agencies since 1997.

The Credit Guy answers a question about a debt or credit issue from a reader each week.
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Published: May 12, 2008

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